Money Clip

Blog by Matthias Paul Kuhlmey

Matthias Paul Kuhlmey is a Managing Director & Partner at HighTower Advisors, where he serves as wealth manager to High Net Worth and Ultra-High Net Worth Individuals, Family Offices, and Institutions.

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Honey for the Bees

Wednesday, November 30, 2011

Posted By: Matthias Paul Kuhlmey

Finally, the Holiday trade is on – and we are talking ON! Earlier today, major Central Banks, including the U.S. FED, European Central Bank, Bank of Japan, Swiss National Bank, Bank of Canada, and Bank of England, have announced a coordinated intervention into financial markets. The “Big Six” will provide liquidity through a temporary network of reciprocal swap lines and, effective on December 5th, pricing on U.S.-Dollar liquidity swaps will be lowered by 0.5 percent.

What can we say? One must go with the flow, even as every fiber in our beaten advisor bodies is out of tune, regarding this surprise announcement. It is very clear that the financial system is under severe stress. Not since the failure of Lehman Brothers, in September 2008, have we seen such coordinated intervention. As always, we are enjoying the multiple attempts of explaining the decision. Here is a good one, by Christian Noyer, France’s central bank governor and a governing council member of the European Central Bank: “We are now looking at a true financial crisis – that is a broad-based disruption in financial markets.” Excusez moi, Monsieur – just now you are looking at the possibility of a global financial crisis? Oh, Mon Dieu!

Central Bank “dough” is not the only thing lifting markets. We also received an encouraging (?) set of data on the labor market; in November, private-sector jobs in the U.S. rose by 206,000 vs. the expected consensus reading of 130,000. Nobody cares, however, that “the productivity of U.S. workers in the third quarter was less than initially reported, thus reinforcing the view that economic growth in that period wasn’t as robust as first thought.”

The above brings us to another, very interesting observation: According to a well-known financial blog, Wall Street forecasts (consensus and distribution) on economic data vs. actual reported numbers are severely out of line; the actual data we are seeing in areas like payrolls, PMI, and pending home sales is higher than even the highest Wall Street estimates (and over 4 std deviations above the consensus, for you statisticians).

Something just doesn’t add up. In other words, do not be fooled – we are far from a serious and sustainable recovery. The positive momentum is data and liquidity-driven.